1. What is a power of appointment?
A power of appointment is a type of equitable mechanism which facilitates the
management and allocation of property. It is a personal mandate given to a person
who may in his discretion create or dispose of beneficial interest or proprietary
rights in property which that person does not himself own, and this mandate may
be exercised or not.
2. Distinguish between general, special and intermediate (or hybrid) powers of
appointment.
General powers of appointment are powers which the donee may exercise in
favour of such person or persons as he please, including himself, as well as in
favour of any purpose of purposes as he pleases. (in Re Dilke [1921] 1 Ch 34, the
omission of the words “and purposes” after “such person or persons” was
considered unimportant) As long as such a power exists, it will generally not be
subject to any restrictions or limitation as to the mode or manner of its exercise.
A special power is a power which can only be exercised in favour of certain
specified persons, although the donee of the power may be included in the class of
specified persons.
An intermediate or hybrid power is a power to appoint to all persons except a
named or specified person, persons, or class of persons.
Which class of power is created by an instrument is a question of construction. A
power may partake of several of the characteristics of each class, and may change
its status and category as circumstances change.
3. Distinguish between a special power of appointment and a discretionary trust.
While the duty of a trustee to exercise his discretion under a discretionary trust is
mandatory, the donee of a power of appointment may choose not to exercise the
power at all: a donee asks “shall I exercise the power?” and “in whose favour?”,
while a trustee’s only question is “in whose favour?”.
While both trustees and fiduciary donees may owe duties to the objects, such as to
consider periodically whether or not to exercise the power, to consider the range
of objects of the power, and to consider the appropriateness of individual
appointments, (Re Hay’s Settlement Trusts [1982] 1 WLR 202 (ChD) ), the extent
of the duties owed by a fiduciary donee is much less than that of a discretionary
trustee. This is illustrated in the judgment of Lord Wilberforce in McPhail v.
Doulton [1971] AC 424 (HL), where he stated that the court would “not
normally” compel the exercise of a power nor intervene except where the powers
were exceeded or exercised capriciously, whereas in the case of a discretionary
trust, the court would if called upon exercise the trustee’s discretion “in the
manner best calculated to give effect to the settlor’s or testator’s intentions”. This
was so, he explained, because “A wider and more comprehensive range of
enquiry is called for in the case of [discretionary trusts] than in the case of
powers.”
Another, perhaps more nebulous difference is that, in the case of a discretionary
trust, it is debatable whether the beneficiaries as a class have an equitable interest
in the trust property, in the case of a power, until and unless the power is properly
exercised, the beneficial interest will be suspended.
4. Consider the effect of the following dispositions, the gifts being limited to the
perpetuity period. As well as the validity of the gifts consider (a) the duty of the
trustees and (b) the ‘whereabouts’ of the beneficial interest.
(a) “to distribute amongst B, C, D, E and such of my other business associates and
old friends as T shall see fit”
The gift is likely to be invalid for uncertainty of objects. In this case, the trustees
have no discretion to refuse to distribute the property transferred on trust for them.
Moreover, “old friends” and “business associates” are, barring the admission of
further evidence, concepts which are incapable of definition to a degree sufficient
to satisfy the requirements of legal certainty; it is impossible to define objectively,
for example, the criteria which the possible beneficiary must satisfy in order to be
considered a friend of the settlor.
A similar situation occurred in Re Barlow’s Will Trusts [1979] 1 All ER 296
(ChD), where the testator in her will sought to allow 'any members of my family
and any friends of mine who may wish to do so’ to purchase particular paintings
in her collection at particular prices. In that case, the court held that the gift was
valid by treating it as a series of ‘one or more individual’ gifts subject to a
condition precedent, such that the test for validity was whether or not the claimant
could prove that he satisfied the condition, given that the testator had had
acquaintances of a kind so close that on a reasonable basis any person would have
considered them friends. By holding that the test in McPhail v. Doulton did not
apply, the court seems to implicitly have accepted that the gift would be void for
uncertainty had it been construed as a discretionary trust.
Therefore, since it cannot be said with the requisite degree of certainty that any
person is or is not an “old friend” or “business associate”, the gift fails for
uncertainty and reverts to the settlor’s estate on a resulting trust.
In such a case, since the trustee is not given any discretion to refuse to distribute
the trust property, the property would if the trust were valid belong to the
beneficiaries as a class.
The trustees would have the duty of conducting a survey of the range of objects
‘in a businesslike way’, the extent of which would depend on the size of the trust,
so that an allocation cannot be made without first assessing the appropriateness of
that allocation in light of the claims of other possible beneficiaries, and the duty
not to make allocations outside of the class of potential objects.
(b) “to distribute amongst such of the inhabitants of Toa Payoh as T in their absolute
discretion think fit”
This situation is analogous to the case of R v. District Auditor (1986) 26 RVR 24
(QBD), where a trust for the inhabitants of West Yorkshire was held to be invalid
for administrative workability. In that case, although the class of beneficiaries was
held to be conceptually certain, the definition of the beneficiaries was so wide as
to be incapable of forming “anything like a class”, as suggested by Lord
Wilberforce in Mcphail, as the inhabitants of West Yorkshire at the time number
around 2.5 million.
The justification behind the administrative workability doctrine is that the court
will not uphold any trust it cannot enforce; to do so would be contrary to the
nature of the trust relationship as an obligation, as the trustees would then be free
to commit breaches of trust without fear of reprisal, rendering the trust
relationship nugatory. While this reason is sound in principle, it entails many
difficulties in application.
For example, it is unclear at what point the definition of a class of beneficiaries
becomes so wide as to not form ‘anything like a class’. Would the trust in District
Auditor have been valid if expressed as a series of smaller trusts for smaller
districts? At a cursory look, Toa Payoh has a population of anywhere between
116, 000 to 200, 000 inhabitants, a number far smaller than that in District
Auditor. In Pearce & Stevens, it was surmised that “’administrative workability’
will only render discretionary trusts void which have a class ranging in the
magnitude of millions”. By this reasoning, therefore, the trust would not be
invalid for administrative workability.
Furthermore, however large the class of beneficiaries, it would not be impossible
to enforce the trust as long as the trust document defines with sufficient clarity the
objectives of the trust; any member of the class would then have the right to
compel the trustees to exercise their discretion ‘bona fide’, ‘fairly’, ‘reasonably’,
or ‘properly’. (IRC v. Gartside [1968] AC 553 (HL))
However, it might nonetheless be held void on another ground, that of
capriciousness. In Re Manisty’s Settlement [1974] Ch 17 (ChD), Templeman J
stated that the court could be persuaded to intervene where a trustee of a
discretionary trust exercised his power ‘capriciously’, in a manner which could be
said to be “irrational, perverse or irrelevant to any sensible expectation of the
settlor”. By parity of reasoning, he considered that the objections to the capricious
exercise of a power might well be extended to the creation of a capricious power,
for such a power would ‘negative any sensible intention on the part of the settlor’
and therefore negative any sensible consideration by the trustees of the exercise of
the power; such was “a power to benefit ‘residents of Greater London’”.
In Re Hay’s Settlement, Sir Robert Megarry V-C appears to have accepted this
proposition implicitly when he gave as a negative example the case of a former
chairman of the Greater London Council. However, he then went on to caution
that the court should be slow to declare that a trust was void on ‘a peradventure’,
for “[d]ispositions ought if possible to be upheld, and the court ought not to be
astute to find grounds on which a power can be invalidated.” He considered that
such grounds included cases where there was ‘some real vice’ in the power, or if
there were ‘real problems of administration or execution’.
It is doubtful whether trusts for the benefit of the inhabitants of an area could be
considered trusts with ‘some real vice’, and Sir Robert’s example of a situation in
which “a trust for the benefit of Greater London” could be considered not
capricious demonstrates the sheer ridiculousness of the doctrine. The motive of
the settlor in deciding what is ‘sensible’ when constituting a trust in favour of
particular beneficiaries should be, unless contrary to public policy, a matter
towards which the courts should be neutral. Why should it be that the former
mayor of Greater London may make a valid gift to the residents of Greater
London, but a quiet resident who has lived there all his life may not?
It is submitted that the real justification behind the capriciousness doctrine is the
desire to limit the number of public trusts. However, since Re Denley [1969] 7 Ch
373 (CA), it has been settled that though a trust may be expressed as a purpose
trust, it may be enforced if it is directly or indirectly for the benefit of individuals.
There is then really no reason why such a trust for the benefit of Greater London,
if free of ‘some real vice’ or administratively workable, should be invalid; the act
of the settlor in constituting the trust shoudl be sufficient evidence that he
intended to benefit the inhabitants of Greater London, and it should not be for the
court to decide whether such intention is sensible or not. Indeed, to do so might be
to constitute undue interference with the settlor’s property rights. The law allows
persons to leave money to their dogs or for the purpose of proving that
Shakespeare did not write Shakespeare’s plays, why should it not allow persons to
leave money to their own fellow citizens?
Therefore, the trust should be valid.
(c) “to distribute income and capital to such members or former members of the
Faculty of Law, and in such proportions as they in their absolute discretion think
fit, and if no distribution is made, then to the Dean absolutely”
Such a disposition creates a power of appointment, because it allows the trustees
to withhold distributing the trust property to the class of beneficiaries. It will
therefore be valid if “members or former members” satisfies the test laid down by
the House of Lords in Re Gulbenkian’s Settlement Trusts [1970] AC 508 (HL),
where the test for validity of a power of appointment was held to be the
requirement of conceptual certainty: ie. the ability to say with certainty whether or
not a person is or is not a member of the class. Since the term is capable of
objective definition, the trust should not be held void on this basis.
In the case of a power of appointment, the beneficial interest in the subject-matter
of the power is suspended until any disposition is made properly, or until the
period for the exercise of the power has come to an end.
The duties of a fiduciary donee of a power would be, as stated below in Re Hay’s
Settlement, similar to those of the trustee of a discretionary trust except less
comprehensive and wide, as stated by Lord Wilberforce in McPhail.
(d) “to hold on a trust to distribute capital and income to such residents of Singapore
as they think fit”
The population of Singapore numbers over 4 million at least, which is far larger
than the 2.5 million in R v. District Auditor. It is therefore clear that the trust will
be held invalid for administrative workability.
(e) “on trust with power to appoint amongst such persons as they in their absolute
discretion think fit and in default of appointment to the Dean”
Such a disposition grants T a general power to appoint such persons as they see
fit. In Re Hay’s Settlements, Sir Robert considered that, whichever the nature of a
power of appointment, there was nothing in the number of persons to whom an
appointment might be made which would invalidate it. While addressing this
remark in relation to ‘mere powers’, he went on to consider that in the case of
fiduciary donees, there was imposed the additional duties of making a survey of
the range of objects or possible beneficiaries, of finding out the permissible area
of selection and considering responsibly in individual cases whether a
contemplated beneficiary was within the power, and of considering whether, in
relation to the possible claimants, a grant was appropriate. The power to appoint
to anyone in the world was not contrary to these duties, as Sir Robert later took
some pains to specify that the remarks on administrative workability made by
Lord Wilberforce in Mcphail were not meant to apply to powers.
(f) “on trust with power to appoint amongst such persons as they in their absolute
discretion think fit, provided always that no distribution be made to anyone who,
in the opinion of the Dean, has an unsavoury reputation, and in default of
appointment to the Dean”
This disposition is similar to (e), except for the specification that grants may not
be made to persons whom the Dean considers tainted by an unsavoury reputation.
This new class is not conceptually uncertain, merely imposing a duty on the
trustees to confer with the Dean whenever they wish to make a grant. Therefore it
is unlikely to be held void for uncertainty.
5. Discuss the validity and effect of S’s gift to his employees and ex-employees.
The mandatory language of the document, which does not leave the trustees the
discretion to refuse to make a grant, attempts to create a discretionary trust. The
issue then becomes one of whether the class of beneficiaries is conceptually
certain, capable of satisfying the ‘is or is not’ test of whether a particular
individual may be said to be within or without the class.
Here it is likely that ‘exceptional service’ by itself is an uncertain definition, as it
would be impossible to provide an objective definition of what exactly makes
service rendered ‘exceptional’.
In Re Tuck’s Settlement [1978] 1 All ER 1047 (CA), however, a trust containing a
similarly conceptually uncertain definition was held to be validated by the
addition of a clause specifying that in the case of dispute the decision of the Chief
Rabbi in London should be conclusive.
Following this reasoning, therefore, the inclusion of the clause allowing Wilma to
adjudicate should validate the gift as long as Wilma remains alive and capable of
making a proper decision.
However, the reasoning in Re Tuck failed to consider a situation where a decision
was taken by the third party arbitrarily. In such a case it is submitted that the
result in Tuck remains sound; the real intention of the testator being that the class
should consist of such persons as considered within the class by the specified
third party.
6. “The requirement of administrative workability in discretionary and purpose
trusts serves no useful purpose. The same is true of the doctrine of capriciousness
applied to powers.” Discuss.
(see 4(b))